A Disease Known as Credit Risk

The following situation may sound familiar: A while ago, you lent money to a friend and the time has come for the friend to pay you back. You already worry, though, that your friend won’t be able to pay back the loan. The idea that you might have to remind him is unpleasant; it makes you uneasy, queasy, almost to the point of nausea. Well, we are here to inform you that you have just been infected with the Credit Risk virus. And you won’t be cured until the money is safely returned.

In the modern world, this is a virus as ordinary as the common cold. It does not limit itself to you or your friends. Credit risk touches anyone that extends a loan or has money due. It affects banks that offer loans ...

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